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What is a depository?
A depository is an organisation where the securities of a shareholder are held in electronic form at the request of the shareholder through the medium of a Depository Participant. A depository can be compared to a bank. If an investor wants to utilise the services offered by a depository, the investor has to open an account with the depository through the Depository Participant. This is very similar to the opening of an account with any of the branches of a bank in order to utilise the services of that bank.
Who is a Depository Participant?
A Depository Participant (DP) is an agent of the depository, who is the interacting medium between the depository and the investor. A DP is responsible for maintaining your securities account and handling the securities account in accordance with your written instructions.
What is dematerialisation?
Dematerialisation is a process by which the physical certificates of an investor are taken back by the company and an equivalent number of securities are credited in the electronic holdings of that investor. This is done at the request of the investor. An investor will have to first open an account with a DP and then request for the dematerialisation of his certificates through the DP, so that the dematerialised holdings can be credited into that account.
What are the advantages of dematerialisation?
- There is no paper work involved like transfer deeds, lodging and dispatching of transfer documents.
- Eliminates risks associated with physical deliveries such as loss, theft, forgery, etc.
- Bad deliveries are almost eliminated. Transfer of securities is immediate on completion of respective settlement.
- Receipt/payment of proceeds on selling/purchasing is much faster.
- No stamp duty on transfers.
- Facility to pledge and hypothecate securities, in addition to freezing/ locking of accounts.
- Option available for taking shares out of the depository and holding share certificates in physical forms.
- Trading possible in any lot.
How does one convert physical shares into electronic shares (dematerialisation)?
- Firstly, approach a DP of your choice and open an investor account. You will be able to use the same account for dematerialisation of shares of different companies.
- The DP will enter into an agreement with you and charge you at the agreed rate for dematerialisation/rematerialisation of share certificates, based normally on the number of certificates and for custody on a monthly/annual basis, on value of shares held.
- Fill up the Dematerialisation Request Form (DRF) to be provided by the DP and hand over the share certificate duly cancelled by writing ‘Surrendered for Dematerialisation’ back to the DP.
- Take a receipt from the DP for the share certificates lodged.
- The DP will send the documents to the Registrar & Transfer (R&T) agent of the company.
- The R&T agent will effect dematerialisation of securities subject to the documents being in order and will confirm the same to NSDL/CDSL (National Securities Depository Ltd./Central Depository Services Ltd.) who, in turn, will inform your DP.
- You will be intimated by the DP about the dematerialisation of shares, normally within 15 days.
- The DP will give a statement of holdings and update your account after each transaction.
Can you convert your electronic shares into physical form?
Yes. Rematerialisation is the process of conversion of securities from electronic to physical form. Submit a Rematerialisation Request Form (RRF) to the DP for the same. The company prints the share certificates and sends it to you within 30 days.
How do you trade in your electronic shares?
Buying and selling electronic shares are just like buying and selling a physical share. The only difference is trading in electronic shares is simpler and safer. If you wish to sell your electronic shares, you place your order with your broker and instruct your DP by way of delivery instruction to debit your account with the number of shares sold by you. When you buy electronic shares, you must inform your broker about your depository account number so that the electronic shares bought by you can be credited into your account. Payment for electronic shares bought is made in the same way as in case of physical securities. The shares you have bought are transferred in your name much earlier than the physical mode with no fear that the shares may turn out to be bad deliveries or fakes. No formalities of filing transfer deeds, affixing share transfer stamps and applying to the company for registering the shares in your name.
Will there be a charge for the opening of an account or for every transaction?
There will be charges for the opening of an account and also for every transaction in the account. This varies from one depository participant to another.
Do you have to keep any minimum balance of securities in your account?
No. The depository has not prescribed any minimum balance. However, the DPs may fix some minimum limits.
Are you restricted to having only one DP?
There are absolutely no restrictions on the number of DPs you can open accounts with.
Who will give you the benefits arising out of your holdings, say a bonus or a dividend?
When any corporate event such as rights or bonus or dividend is announced for a particular security, the depository will give all the details of the clients having electronic holdings of that security as of record date/book closure to the company. The company will then calculate the corporate benefits due, to all the shareholders. The disbursement of cash benefits such as dividend/interest will be done by the company, whereas the depository will do the distribution of securities entitlements based on the information provided by the company.
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